Do you want to protect and preserve for yourself and your loved ones the substantial estate you have worked so hard to build? At Panitz & Kossoff, LLP, our attorneys provide estate planning and probate representation to clients throughout Southern California, including Thousand Oaks, Malibu and Westlake Village.

Legal

08/27/2018

A prenuptial agreement may be the first legal document an engaged couple signs, even before they apply for a marriage license. Think of a prenup as a complement to the marriage license and estate planning documents: it’s another document to protect the couple’s future.

A prenuptial agreement, as described in Forbes’ recent article, “Pre-Nuptial Agreements: A Hedge For Happily Ever After,” protects both members of the couple with a legal agreement that designates certain current and future assets as owned by an individual and those owned by the couple together—marital property.

Although there are two types of laws dealing with the ownership of marital property (common law and community property), typically if one spouse enters a marriage with significant assets and would like to keep these assets separate, a prenuptial agreement can provide him or her with protection, if the marriage ends in divorce.

For example, although inherited assets have traditionally been considered separate assets, these assets can easily become marital property. It’s possible for these inherited assets to remain as separate property through careful segregation. It’s also common for a couple to unintentionally comingle these assets, making them marital assets.

Depositing inherited assets into a joint account or using separate assets to purchase a jointly owned residence that benefits both spouses are frequently seen examples of comingling that can create marital property. Even when a couple attempts to keep assets separate, depending on state law, an inheritance (or the appreciation) may still become marital property.

In some instances, a trust with a prenuptial agreement may give a person the best protection against the inadvertent conversion of separate property into marital property.

Prenuptial agreements can be quite important to protect children in high-net worth families. These agreements create a clear structure that will help to avoid uncertainty of a divorce settlement and make certain that the intended beneficiaries receive the appropriate family assets.

No, discussing a prenuptial is not romantic. However, don’t think of it as planning for divorce, but as a means of putting the couple’s financial house in order. When there are children from prior marriages or if one spouse has significantly more wealth than the other, the conversation will be necessary at some point in time. Take care of this business now, so you can move on to enjoying building a new life together.

Michael and Maria, siblings of celebrity chef Rocco DiSpirito, have filed a lawsuit to get Rocco removed as executor of the estate. They accuse him of failing to pay property taxes and taking the rent payments from an apartment building she owned in Brooklyn.

Nicolina passed away in 2013. She named Rocco as her executor and left half her estate to him. She split the other half between her other son Michael and daughter Maria.

Rocco has delayed the probate process and has accumulated needless expenses that are draining the estimated $1.5 million estate, his siblings charge. The unpaid taxes and water bills for his mother’s Pacific Street building, which has six units and a storefront, have reached more than $23,000, according to court papers. Rocco won’t sell the building, even though the family could get about $800,000 for it, Michael and Maria claim. Rather than dividing up their mom’s personal belongings, as she instructed in her will, Rocco’s incurred tens of thousands in unpaid bills to store what his siblings estimate is less than $20,000 worth of personal property.

“Rocco DiSpirito’s neglect, waste, inaction and misconduct accomplishes nothing other than increased expenses and legal fees for the estate,” the siblings wrote in court papers seeking Rocco’s removal as executor.

There is a specific procedure to remove an executor from a will, after the death of the testator: an interested person must file for a court proceeding. An “interested person” is defined as an individual or business that has a stake in the estate assets.

In most cases, a judge will only remove an executor, if it is proven that she or he is not capable of performing the duties required, is unsuited for the position or has become disqualified since the decedent appointed her or him. The executor is required to act in good faith and with the best interest of the beneficiaries in mind. Grounds for removing an executor include doing a bad or negligent job of managing the estate and its assets.

08/22/2018

You know your kids best—the one who turns a dollar into ten bucks with seemingly no effort and one who burns through cash like an ATM machine. Some children never learn to manage money well, and others seem to be born with good financial skills. There are ways to control when your children inherit wealth, and how much they inherit.

Wealth Advisor’s article asks, “When Should Children Have Access To Their Inheritances?” The article looks primarily at distributions from trusts created by a will (testamentary trusts). However, these considerations also apply to trusts created during your lifetime, which are called inter-vivos trusts.

One big difference between your will and lifetime irrevocable trusts, is that during your lifetime your will can be updated and changed. However, amending or changing, a lifetime irrevocable trust is much more difficult. Usually it requires a statutory solution (decanting) or permission from the courts.

Distributions can be discretionary, mandatory or event-driven. A common distribution structure includes mandatory distributions at specified ages, such as 25, 30, and 35. A third of the principle is distributed at age 25, with half of the balance doled out at age 30, and the remaining balance distributed at age 35.

In addition to mandatory distributions, a trust can provide that the trustee has the authority to make either fully discretionary distributions or distributions under some “ascertainable standard,” such as for the beneficiary’s health, education, maintenance and support. However, detailing only mandatory distributions or event-based distributions significantly reduces the fiduciary’s flexibility.

A trust should be created with the help of an experienced estate planning attorney. He or she will help guide your decisions about trust distributions, that include both the principal and the income generated by that principal.

In many situations, when an estate plan is designed, you may not be sure of the ultimate size of your children’s inheritance. In that case, your attorney can help you plan for an income stream in today’s dollars, as well as a cost of living adjustment to account for inflation. This will eliminate any mandatory income distributions that may mean large distributions to children at relatively young ages.

Alternatively, you could give the trustee the power to make these decisions, and let your children have access to whatever amounts the trustee thinks is appropriate. There’s also a hybrid approach, giving the trustee certain mandatory distributions combined with discretionary distributions. Some estate planning attorneys believe that this provides the most asset protection and flexibility.

In any event, no one size fits all, and what will work for one or more of your children or grandchildren will not work for other children or grandchildren. The distribution structure of your trusts should reflect considerable thought and discussion about how best to preserve, for the benefit of whomever you want, the estate you have created over a lifetime of work.

08/21/2018

The words “dementia” and “Alzheimer’s disease” are often used interchangeably, but they are different types of dementia. There’s alcohol-related dementia, Parkinson’s dementia and frontotemporal dementia. Each has different causes, according to AARP in a recent article, ““Dementia vs. Alzheimer’s: Which Is It?” It is extremely important to be sure that the correct type of dementia is diagnosed, so that the correct treatment, medicines and support for the individual and the family is given.

Correctly identifying Alzheimer’s instead of another type of dementia, may result in a prescription for a cognition-enhancing drug rather than an antidepressant. A patient may also be eligible to participate in a clinical trial for Alzheimer’s, if he or she has been specifically diagnosed with the disease.

One important clarification comes from Constantine George Lyketsos, M.D., director of the Johns Hopkins Memory and Alzheimer’s Treatment Center in Baltimore, who said “To be called dementia, the disorder must be severe enough to interfere with your daily life.”

Dementia is a nonreversible decline in mental function. It’s a catchall phrase that encompasses several disorders that cause chronic memory loss, personality changes or impaired reasoning. Alzheimer’s disease is just one of them.

Alzheimer's is a specific disease that slowly and irreversibly destroys memory and thinking skills. There’s no cure. However, researchers have identified biological evidence of the disease: amyloid plaques and tangles in the brain. They can be seen microscopically, or more recently, using a PET scan that employs a newly discovered tracer that binds to the proteins. The presence of these proteins can also be detected in cerebral spinal fluid, but this method isn’t used often in the U.S.

Dementia is diagnosed by a doctor who must find that you have two or three cognitive areas in decline. These areas include disorientation, disorganization, language impairment and memory loss. To make that diagnosis, a doctor or neurologist will administer several mental-skill challenges.

Despite many advances in research, there is still no definitive objective test for Alzheimer’s disease. Doctors rely on observation and ruling out any other possibilities for their diagnosis. The use of the new PET scan is said to be 95% accurate, but it’s usually recommended only for patients with unusual symptoms.

If a family member gets a diagnosis of Alzheimer’s or dementia, make sure that their estate plan is in place and up to date. There are likely to be many issues that need to be addressed.

In addition, speak to a medical social worker -- we have one on staff -- or nurse experienced in elder care issues. The challenges presented by any form of dementia will impact not only the person with dementia, but everyone around that person. The stress on family members and other loved ones is enormous. That is why we brought a medical social worker on board, so take advantage of her expertise to help reduce your stress and guide you through the difficulties of dementia.

They may not know how much money they have or if there’s enough to keep the household running after the loss of the main breadwinner. If they haven’t handled budgets and planning, they may not be at all confident that they can.

Women need to have a basic knowledge of how much money they have and how it is allocated. A 2014 study by Prudential found that 27% of married women say they “take control” of financial and retirement planning and manage it themselves. That means that 73% of married women do not. With this gap in knowledge, here are the three basic financial measures that all married women should know about their money:

Research Your Annual Household Income. Determine how much you and your husband earn together. Review your income from investment accounts, jobs, rental real estate, pensions, Social Security and business investments. If there’s a divorce, the lists of assets and income are an important part of the property settlement. Review your tax returns from the past two years and keep a copy of each tax return going forward.

Understand Your Assets and Debts. At least once a year, make a list of everything you own. Don’t forget checking and savings accounts, 401(k) retirement plans, life insurance and real estate. It’s important to know your net worth, so next to each asset, make a note about any corresponding loans. An annual review also helps make sure couples don’t forget about any investments they may have made years ago, like a stock that may not be performing well. It is also important to determine ownership in each asset. This will be important, if your spouse passes away, and could affect the income tax you pay each year.

Do You Have an Estate Plan? If you and your spouse don’t have a will, talk to a qualified estate planning attorney and bring the household balance sheet to the meeting. If you’ve made a will, review it and make certain you know which assets you’ll inherit if your husband passes away. You should also determine how much income will be available from life insurance and other sources to support you for the rest of your life. If your attorney only provides an electronic copy of the will, print out a copy and keep it in a safe and accessible spot.

The emotional loss of a husband, or the end of a marriage, is tough enough. Add financial worries to it, and the burden becomes that much harder. Women who are accustomed to dealing with finances and estate planning, will be much better prepared to cope with their new lives as singles.

A joint bank account can be a quick and easy way to help your parents pay bills and monitor their spending. With you monitoring their account, it’s also easier for you to see potential fraud. It allows an adult child to watch for unauthorized purchases or other issues with the account, like late fees or overdrafts. Another benefit is that in the event of your parents’ deaths, you will have immediate access to the account funds without the need to go through the probate process. This can be helpful when paying burial and other final expenses.

However, there’s plenty that can go wrong if you have a joint bank account with your parents.

First, your parents’ money won’t be safe from your own debts or liabilities. If something happens to you, like an accident, divorce, or bankruptcy, you’ll be putting your parents’ money at risk. Depending on the rights of survivorship on the account, all the money in the account could go directly to you when the last of your parents dies. That would disinherit your brothers and sisters.

If you make deposits to the account yourself, it may impact your parents’ eligibility for government benefits, like Medi-Cal. A joint account may also play a role in your child’s student financial aid eligibility because government and financial institutions can designate all the money in the joint account as your money—even if half of it is yours and half belongs to your parents.

There can also be tax implications to having a joint account. The IRS could deem this to be a gift, triggering a gift tax return, if the account is valued above $15,000 (from each parent for 2018). Likewise, if the parents and adult child open a new account together, and the parents deposit a large amount of money which the adult child later withdraws, it could arguably be seen as a gift.

Look at these options that might work better for you and your family instead of a joint bank account:

With signature authority on an account, you can pay your parents’ bills. However, you won’t be authorized to use the money in ways that aren’t for their benefit, and the money will be protected from your creditors.

With a durable power of attorney, an adult child can make financial decisions on the accounts that are titled in the parents’ names. The DPOA should be durable, so that it will still be in place, if the parents become incapacitated. However, banks often are very reluctant to honor powers of attorney -- even when they are done on the bank's own forms.

Your parents can create a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust. Talk with an estate planning or elder law attorney to see if this makes sense in your situation.

If you’re worried about your mom or dad’s mental capacity, you petition the court for conservatorship, which will let you to manage his or her finances. The conservator doesn’t own the funds, and the money can’t be garnished or seized to settle a conservator’s debts. However, it’s a difficult, complicated and costly process. All concerned may be better served to have a durable power of attorney in place, before a parent becomes incapacitated.

What if your larger concern is that funds will not be available after your parents die, because they’ll be part of probate? One way to address is by adding a ““Payable on Death” provision to their bank account. The funds will be paid directly to the account’s beneficiaries. A word of caution: speak with an estate planning attorney to be sure that this will not have an impact on any estate planning already in place. Also recognize that a payable on death designation does nothing to gain access to funds for your parents' needs while they are alive.

First and foremost, consider the implications to YOU and your loved ones of the progression of the disease with which you have been diagnosed. Do you have enough assets to provide for care if your home? If so, will that be medically feasible throughout the duration of your suffering? If so, what will that look like as the disease progresses? If not, what are your options? What types of facilities are licensed to care for people with needs you do or will have given your condition?

For many conditions, the progression of the disease can be predicted. The failure to plan for the period when you won't die is failing to plan for what may be the hardest part of the journey. This is precisely why my firm brought a medical social worker on staff to assist our clients in preparing themselves and their loved ones for the inevitable decline of progressive disease. Take advantage of the burgeoning field of life care planning to make a very difficult time a bit easier on you and your loved ones.

Now to the more standard financial and legal issues that most people discuss. One way to get organized is to set up a ringed-binder notebook so you can easily add information. This will allow you to have all the information in one place. Therefore, your family won’t stress about trying to find things.

If you don’t have an up-to-date will, make a list of your assets, such as your financial accounts, real estate and retirement accounts. You should also make a list of personal belongings and who you’d like to have them, because this isn’t spelled out in a will.

Next, be sure to designate beneficiaries on your financial accounts. Many brokerage firms allow you to attach transfer-on-death instructions to your non-retirement accounts. Transfer-on-death deeds can also be used on real estate in 27 states. While that now is allowed in California, the well-intended but incredibly poorly drafted California law concerning transfer-on-death deeds is such a mess that using it is not at all a good idea -- unless you know for certain that your heirs will not want to sell your house for at least three years (which they will not be able to do because they cannot get title insurance until three years after death if you use a California's transfer-on-death deed), and do not mind personally assuming full responsibility for all of your debts.

You should next list your liabilities, such as your home mortgage, loans, credit card debt, and your insurance policies for health, home, and autos. Create a contact list of people your family can reach for help, like your attorney, CPA, insurance agent, and financial advisor.

If you already have an estate plan in place, it can be a good idea to consult with an attorney experienced in estate planning, if you’re hit with some dire news. That may alter some of your thinking.

Keep all your passwords in the binder. You should also monitor your pension and Social Security benefits, since there could be survivor benefits. Your binder should always include a copy of the previous year’s tax return.

Make arrangements for your pets, so that they do not end up in kill-shelters. If you own a home, create a list of all service agreements, like landscaping and utilities.

Finally, write a legacy letter, instructing your heirs as to what you would want for your funeral arrangements and how you would like your personal belongings to be distributed. Speak with your estate planning attorney to have this information incorporated into your will.

08/10/2018

It’s true—planning a summer vacation is far more fun that facing your own mortality and deciding who gets Aunt Susan’s soup tureen. However, families who are left to clean up the mess, when a loved one doesn’t put an estate plan into place, including a will, power of attorney and healthcare directive documents, are the first to tell you, they’d rather you go on vacation after you prepare your estate plan.

Investopedia’s recent article, “4 Reasons Estate Planning Is So Important,” reminds us that estate planning isn't only for the rich. To show you that estate planning is necessary, look at these four reasons why you should have an estate plan to avoid potentially devastating consequences for your loved ones.

Keeps Your Wealth From Going To Unintended Beneficiaries. Estate planning helps middle-class families plan, in the event something happens to a family's breadwinner(s). If you don’t decide who receives your assets when you pass away, you won’t have any control as to who gets what. Without an estate plan, a probate court will decide who gets your assets, based on state intestacy law. This may not be what you would have wanted. A will can avoid this result.

Families with Young Children are Protected. If you're the parent of minor children, you need to name a guardian to be certain your children are taken care of the way you’d want. Without this fundamental provision in your will, the probate courts will make this decision. Even with that provision, a court will have to issue an order officially appointing your nominated guardian, but in the vast majority of cases, California courts will appoint the person or persons you nominate.

No Huge Taxes for Your Heirs. Estate planning serves to protect your family from unnecessary estate and income taxes. You want to minimize or eliminate all of their federal and state estate taxes or state inheritance taxes (though there are currently no California estate or inheritance taxes), as well as the income that tax beneficiaries might have to pay. Without a plan, these taxes can be significant.

Avoids Headaches and Messes for Your Loved Ones After You're Gone. Family fighting after a loved one dies is not uncommon, and it's another reason why an estate plan is needed. An estate plan will let you say who controls your finances and assets, if you become mentally incapacitated or after you die. It will also go a long way towards settling or preventing any family conflict and ensuring that your assets are handled in the way you wanted them to be.

Think of an estate plan as a gift you leave, your final message, to those you love from the grave. It’s your way of telling them you cared enough to address the really tough stuff. Contact an estate planning attorney and make your appointment without delay.

08/08/2018

A recent article -- nj.com’s recent article asks, “How will your inheritance be taxed?” -- discusses "cost basis" of inherited assets. Although the article was focused on New Jersey, much of the discussion applies outside of New Jersey as well (i.e. in California). Thus, it is worth summarizing for our readers.

The article explains that typically, the fair market value on the date of the decedent's death is almost always more than the decedent's cost basis. As a result, it’s called a "stepped-up" basis and it’s possible the basis could be lower.

Because of the step-up in basis, if you sell the property right after death, there’s typically no income tax consequence. The gain you’d report on the sale is the sales price minus selling expenses, less the fair market value of the property at the date of death.

As far as investment accounts, the new basis of a security is calculated by taking the mean of the high and low price of the security on the date of death, rather than the close price. Let’s say that the decedent passed away over a weekend. The date of death value is determined by taking the average of:

the mean of the high and the low value on Friday; and

the mean of the high and the low value on Monday.

The financial institution will usually give you the investment’s value.

For taxable estates, rather than using the date of death, an alternate valuation date (the date six months after the date of death) can be chosen. In that instance, it must be used to value all of the assets as of the date. You can’t elect date of death value for some assets and an alternate value for others. The IRS also requires consistency in reporting. The basis utilized by the beneficiary as the value of the property received from the decedent, can’t be more than the value of the property reported on the decedent's estate tax return.

For any retirement accounts other than Roth IRAs, income tax must be paid when distributions are made to the beneficiary—like it would have had to be paid on distribution to the decedent. The value of the retirement account in the decedent's estate and/or passing to the beneficiary isn’t reduced by the income tax that will have to be paid on future distributions.

Here’s the difference: if the property is gifted to you, that’s when you obtain the donor’s basis in the property. If you sell the property after you receive it as a gift, it’s more likely that you will have to pay income tax on it, than if you inherited it.

If possible, sit down with an estate planning attorney well in advance of any gift or inheritance and map out the best way to handle the transfer of property.

08/07/2018

The creation of an interdivisional task force at the Securities and Exchange Commission (SEC) to protect senior investors, could become a reality, if the legislation continues to move forward.

Investment News recently published “House introduces bill targeting elder financial abuse.” The article reports that Representative Josh Gottheimer, D-N.J., introduced the National Senior Investor Initiative Act of 2018 to create a team of staff members from the SEC's Division of Enforcement; Office of Compliance, Inspections and Examinations; and Office of Investor Education and Advocacy. They would be responsible for examining the challenges facing elderly investors, focusing especially on the issues seniors have with financial services providers and investment products.

The task force would coordinate with law enforcement authorities, federal agencies, other SEC offices and state regulators, and report its findings every two years to the Senate Banking, Housing and Urban Affairs Committee, as well as the House Financial Services Committee.

The group’s objective would be to recommend specific regulatory or statutory changes that would help senior investors.

The bill also calls for the Government Accountability Office (the “GAO”) to study and report on the economic costs of the financial exploitation of senior citizens, within a year of the bill's enactment.

The law has a sunset clause that will end the task force after 10 years.

The full House subsequently passed by a 406-4 vote, the JOBS and Investor Confidence Act of 2018, also known as House Financial Services Committee Chairman Jeb Hensarling’s “JOBS Act 3.0,” which includes a package of 32 bills.

This “package” included H.R. 6323, also known as the National Senior Investor Initiative Act of 2018, which requires the SEC to make the senior task force a reality.

In my view, to date, few legislative or regulatory initiatives have done much to reduce, let alone stop, the thriving industry of elder abuse, and the likelihood that this task force will have any real impact is quite low. Nevertheless, any attention that the federal government and regulators focus on elder abuse is better than what we have today, and maybe it will result in some incremental progress.